Learn how to get out of debt

As the housing crisis and talk of a recession continue to grab headlines, restless nights are on the rise for people across the country as they try to figure out ways to get out of debt. Debt can prove a formidable foe, one that doesn’t relent and only gets worse the longer it exists.

But is the country in as much debt as it seems? Perhaps not.

In fact, according the United States Federal Reserve, the majority of U.S. households have no credit card debt. Roughly 25 percent of households have no credit cards, while another 30 percent have proven diligent with their payments, paying the balance in full each month.

While debt figures are often tossed out as a means of showing the country’s shaky ground with respect to finances, those figures often reflect debt beyond credit cards, even though when many people hear the word “debt” they’re quick to associate it with credit cards.

While the credit card debt situation might not be as dire as journalistic sensationalists would suggest, it is still an albatross that hangs over the heads of many families.

Studies indicate that many of these families are not seeing their situations improve. According to the American Bankers Association, one in six families with credit cards pays only the minimum due each month. In other words, these families are only treading water.

Though getting out of debt can seem overwhelming, it’s also a must for families or individuals who hope to one day regain their financial freedom.

To do just that, consider the following tips.

• Pay bills on time, and pay more than the minimum due. In 2004, a survey from the Cambridge Consumer Credit Index revealed that 42 percent of Americans with outstanding credit card debt are either paying the minimum or making no payment at all.

Missing payments should never be an option, as that could trigger a much higher interest rate or even force an account into collection, even if only one or two payments have been missed.

By paying only the minimum amount due each month, you’re greatly increasing your debt’s life expectancy.

Credit cards have an annual interest rate (APR) and a monthly rate of interest as well. Typically, a minimum payment amount is between 2 to 3 percent of the card’s balance, while the monthly interest rate is commonly around 1.6 percent.

Looking at it that way, those who only pay the minimum amount each month are actually paying less than 1 percent of the card balance, making it nearly impossible to pay off the total balance due in a reasonable amount of time.

• Make a list of purchases. Few people are aware of just how much they actually spend from dayto day, month-to-month, etc. The increased use and acceptance of debit cards has made it even harder to track spending habits.

For those in debt, however, making a list of purchases is a great way to get a hold on just how much you spend on items you truly need and those you don’t.

For many people, debt is a reflection of poor spending habits on items that aren’t necessities. By writing down expenditures, you’ll be able to see just why it is you’re in debt, which should help you avoid getting deeper in debt down the road.

• Seek help from lenders. If debt has indeed become overwhelming, contact lenders to see if they will consider lowering their interest rates as you try to get back on track.

Many people are surprised to find cooperative lenders when they seek such help. However, it’s important to know that when such concessions are made, lenders expect payments to be made each and every month.

When payments are missed after negotiating lower interest rates or monthly payments with a lender, the lender may react immediately, either demanding payment in full, forwarding the account to a collection agency, or possible legal action.